How do you finance an ADU in California?
The loans homeowners use, when future rent can count, and what happened to the state grant.
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How do homeowners pay for an ADU?
Yes. Most of our clients use a HELOC, a cash-out refinance or a construction-to-permanent loan. We work with two local lenders who understand ADU appraisals and can walk you through the options before design starts.
Can the ADU's future rent help me qualify for a loan?
With an FHA-insured loan, yes, within limits. Since October 2023, lenders may count 75 percent of the estimated rent of an ADU, or 50 percent under the 203(k) renovation program, capped at 30 percent of the borrower's total qualifying income. ADU rent cannot be counted for an FHA cash-out refinance.
| Case | Rent counted | Source |
|---|---|---|
| Standard FHA loan | 75 percent of the estimated rent | HUD Mortgagee Letter 2023-17 |
| 203(k) renovation loan | 50 percent of the estimated rent | HUD Mortgagee Letter 2023-17 |
| Cap | 30 percent of total monthly qualifying income | HUD Mortgagee Letter 2023-17 |
| Cash-out refinance | ADU rent cannot be counted | HUD Mortgagee Letter 2023-17 |
Is there a loan that covers the purchase and the ADU together?
Yes. Fannie Mae's HomeStyle Renovation loan combines the purchase or refinance of a home and the cost of the work in a single loan, and it lists accessory dwelling units among the eligible projects. It is offered by approved lenders, not by Fannie Mae directly.
Is the CalHFA ADU grant still available?
No. The CalHFA ADU Grant Program reimbursed up to $40,000 of pre-development and closing costs, but its latest round of funding was fully allocated, according to the program update of December 28, 2023. Check the CalHFA page for any new round before you plan around it.
Does Siboni provide loans or financial advice?
No. Siboni Development & Design is a licensed general contractor, not a lender or a financial adviser. We give you a fixed construction price to take to your lender, and we can introduce you to local lenders who understand ADU appraisals. Rates, terms and eligibility are set by the lender.
Sources
- U.S. Department of Housing and Urban Development, Mortgagee Letter 2023-17 (October 16, 2023)
- Fannie Mae, HomeStyle Renovation
- California Housing Finance Agency (CalHFA), ADU Grant Program
Sources checked on . General information, not legal or financial advice. Rules change and each city applies its own standards: we confirm what applies to your lot during the free site assessment.
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